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How inclusionary zoning stands to grow affordable housing in Ontario

On December 6, 2016, the Ontario legislature passed the Promoting Affordable Housing Act, 2016, expanding the powers of Ontario municipalities to implement "inclusionary zoning," a requirement for developers to build affordable units when constructing new market‑rate housing. The Act changes the provincial Planning Act, RSO 1990, c.P.13, by obliging some municipalities, while making it optional for others, to adopt inclusionary zoning policies. A discussion on the adoption of the Act and debates surrounding its inclusionary zoning provisions can be found on our firm's blog.

These legislative changes come years after rising housing prices, lagging income levels and dwindling federal and provincial funding have created an increasing need for new affordable housing in Ontario. Significantly, according to the 2017 Demographia International Housing Affordability Survey, over the past 13 years Toronto's house prices have nearly doubled compared to household incomes, thus making market-rate housing unaffordable for an increasingly larger portion of the population. The same study also notes that nearby areas such as Hamilton and Oshawa are becoming unaffordable for middle‑income residents.

What inclusionary zoning will look like on the ground remains unanswered. By extension, it is difficult to predict whether the changes will have a significant impact on the need for affordable housing in Ontario. For example, it is unclear what an "affordable unit" means under the new changes and how affordable units will have to be priced. However, the province is slated to release regulations in early 2017 that will hopefully give some meat to its approach and allow municipalities to develop their policies and bylaws.

What is inclusionary zoning?

Inclusionary zoning is an umbrella term for a range of policy options for creating affordable housing units (both rental and owned units) in residential developments over a certain size. In some cities inclusionary zoning takes the form of mandatory requirements to include a fixed percentage of affordable units in new developments while other areas have voluntary programs. Developers are usually offered a package of incentives to offset the cost of providing affordable units.

Inclusionary zoning policies can result in mixed-income residential buildings that contain both market‑rate and affordable units, which can be helpful for municipalities seeking more economic integration of residents.

This tool is generally aimed at providing affordable housing for moderate-income or middle-income households who are priced out of rapidly rising real estate markets. It is not meant to create new social housing or provide housing for very low-income households, and is therefore seen as part of a broader toolbox for addressing affordable housing shortages.

What to expect for Ontario

Based on the changes to the Planning Act that were passed in December 2016, some municipalities will be required to authorize inclusionary zoning through zoning bylaws and official plan policies, while other municipalities will have the option of doing so. The province hasn't yet released details of which municipalities fall under either group, nor what exactly municipalities will have to include in the policies and bylaws they adopt. For example, it's not clear how much leeway municipalities will be given to determine the number of affordable units or the standards for those units. Although this signals the province's concern with increasing affordable housing stock, municipalities will likely have a significant role in determining how strongly inclusionary zoning is implemented.

When a municipality does adopt inclusionary zoning, it will have to create an "assessment report" that outlines local housing needs and how inclusionary zoning can help address them.

The changes also prohibit developers from providing cash substitutes to municipalities in lieu of building affordable units. This will ensure that affordable units are actually built, which the cash-in-lieu option doesn't guarantee. The province made this cash substitute prohibition despite the City of Toronto's official request for this option to be available to developers.

Developers will have the option to build off‑site affordable units in certain circumstances. This could defeat the goal of creating more mixed-income communities and off‑site options could reinforce the socio‑economic divide within communities if a developer building market-rate units is permitted to build affordable units across the city in a lower‑income neighbourhood. However, the Co‑operative Housing Federation of Canada (CHFC) supports the off‑site option for expensive new developments that would make the cost of providing affordable housing prohibitive. CHFC suggests that in such situations, allowing developers to build affordable units off‑site the market‑rate development could help non‑profits and co‑operatives build larger communities.

Below is a summary of some of the questions that will hopefully be answered when the regulations are released:

1. Which municipalities must authorize inclusionary zoning and for whom will it be optional?

2. How will sale or rental price be set? For example, will the standard for determining affordability take into account median incomes of a particular neighbourhood?

3. What will be the threshold size of developments for triggering the inclusionary zoning requirement? The City of Toronto recommended that the requirement only apply to buildings of 20 units or more.

4. What will be the percentage of affordable units that must be built in a new development? Lower percentages will likely be more attractive to developers while higher percentages will increase affordable housing stock at a higher rate.

5. How long will units remain affordable? A limit such as 20 years, as suggested by the City of Toronto, would not provide long‑term security for residents of affordable units, especially in cities where housing prices continue to rise and incomes continue to stagnate.

6. Will municipalities have flexibility to allow adjustments for the size and quality of affordable housing units?

7. Lastly, what kind of incentives will municipalities offer developers to offset the cost of building affordable units? Some of the incentives offered in other areas include density bonuses (where developers are allowed to build higher, buildings with more units than municipal bylaws normally allow), fee reductions, tax incentives, and fast‑track approvals.

The attractiveness of incentives will influence the willingness of developers to build residential buildings that require affordable units. Hopefully the "assessment reports" that municipalities will prepare when implementing inclusionary zoning policies will address the community-level costs of incentives such as density bonuses. For example, allowing too many residential units in one area can overload community services such as schools, which don't have the capacity to accommodate the number of residents.

A successful inclusionary zoning program that grows Ontario's affordable housing stock will ultimately need to balance the needs of local communities while offering sufficient incentives to developers. Although it will not assist very low‑income households nor help address homelessness, inclusionary zoning should be effective in making it possible for moderate or middle‑income people to live in Ontario.

Iler Campbell LLP is a law firm serving co-ops, not-for-profits, charities and socially-minded small business and individuals in Ontario.

Pro Bono provides legal information designed to educate and entertain readers. But legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. While efforts are made to ensure the legal information provided through these columns is useful, we strongly recommend you consult a lawyer for assistance with your particular situation to obtain accurate advice.

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